Explore Various Cost Objects in SAP

Controlling
I often get asked about difference between a Production Order and Process Order.
When is it beneficial to use one over another?
As such, from controlling point of view, both objects have similar features. It is mainly on
the Production Planning and Shop Floor Execution side where we see a difference. The
main advantage of using Process Order is use of Process Instruction Sheet, or PI Sheet
for day-to-day shop-floor activities. Whereas both the scenarios use Material Masters
and Bills of Materials; Production Orders use Work Center (Machine) and Routing
(sequence of operations) – Process Orders use Resource (Machine) and Recipe
(sequence of operations and which component is issued during which operation). The
decision on whether to go with Production Orders or Process Order would depend upon
type of industry and fitment and is largely driven by the Production Planning team.

While we are on this topic of Production Orders and Process Orders, it might be
beneficial to speak about other Cost Objects that are offered in Controlling.

Cost objects and their uses:

A production order is used to track product cost by order in discrete manufacturing and
prerequisites from the master data point of view, including setup of material master, bill
of material, work center, and routing. Order Type PP01 is used for creating production
orders.
A process order is used to track product cost by order in process manufacturing and
prerequisites on the master data side, including include setup of material master, bill of
material, resource, and master recipe. Order Type PI01 is used for creating production
orders.
A CO production order can be used in any industry; prerequisites include setup of
material master. Order Type CP01 is used for creating CO production orders.
A product cost collector is used in repetitive manufacturing to track product costs by
period. A product cost collector is very much similar to a production order in terms of
prerequisites: Material Master, Bill of Material, Work Center, and Routing. Order Type
RM01 is used for creating product cost collectors.
An internal order can be used to collect, monitor, and settle direct and indirect costs
incurred by a specific project. They are cost objects that have a more dynamic nature
than cost or profit centers. Logistics side master data is not necessary for the setup of
internal orders. Several order types are available for use – depending on need and
purpose (overhead of investment). Orders can be used as a primary cost object, which is
then settled to a cost center or as a statistical posting object where the primary posting
goes to the cost center.
A plant maintenance order is used to track costs related to planned or unplanned
maintenance. It uses the work center as the primary master data element, apart from its
own internal master data called functional location. Order type PM01 is used for creating
plant maintenance orders.
A sales order is another type of cost object used to assign costs to a sales order.
Whereas sales orders are primarily used in sales and distribution process in both made-
to-stock and made-to-order scenarios, the use of sales order as a cost object part is
mainly done in a made-to-order scenario.
A cost center is one of the most widely used master data elements in controlling. Cost
centers allow departmental breakdown of costs. They are often the lowest level of an
organization to collect and analyze costs and departmental performance. Cost centers
are useful for the purpose of departmental budgets and plan versus actual comparison
of expenses. Cost centers can also be used for the purpose of interdepartmental cost
allocations through sender-receiver relationships.
Figure 1 depicts a tabular view of a cost objects comparison: prerequisites and setup.

Figure 1: Pre-requisite configuration (order types) and master data for various cost
objects

Figure 2 depicts a tabular view of transaction codes for various processes across
various cost objects.

Figure 2: Transaction codes for cost object master data and period-end closing steps

Case study:
A client already uses Process Orders in their current SAP system. The client has
acquired a business unit that is on another SAP system, but the acquired entity uses
Production Orders. The acquiring entity (i.e. the client) now wants to migrate the new
unit on their SAP platform. The client is wondering if there is any value to have this new
business unit switch to Process Orders when they move to the existing system
First of all, if the client is using Process Orders for one business unit, there will be a lot of
advantages of continuing to use Process Order for the new business unit brought over to
the client’s system. There is less maintenance, less training to acquiring entity and so
on. At the same time, the functionality from the Controlling point of view is similar. The
main advantage of using Process Order is use of Process Instruction Sheet, or PI Sheet
for day-to-day shop-floor activities. A lot would depend on what the Production Planning
team is comfortable with – since the biggest impact is on the shop-floor processes. Of
course, if the new business unit is from a discrete manufacturing (say machine parts)
and your current business is in process manufacturing (say chemicals), then there is no
point in forcing the new unit to use Process Orders, as they will be better off using
Production Orders. In summary, the decision would depend upon type of industry and
fitment, comfort level from Production Planning Team and the level of change
management effort.